Will Chile’s Copper Addiction End Soon?

Chile is a world class copper jurisdiction. Chile’s President Michelle Bachelet said that her administration is set to achieve what no other government has managed to do for half a century- break the nation’s copper addiction.
“I am convinced that in 10 years, and hopefully before, with all the things we are doing with the productivity agenda, with growth, Chile is going to be a far more diversified economy,” Bachelet said.“We can make that jump towards development.”
She also added that the country is laying the groundwork to make the final leap to become a developed nation, something it almost achieved after the decade-long copper boom ended in 2014, with GDP per capita approaching levels seen in Portugal.
“The way to develop is not to do more of the same,” Bachelet said. “The way to do it is exactly what we have been trying to do — develop an ambitious productivity agenda.”

Mines: Investments and Potential Strikes

According to the US Geological Survey, Chile is the top copper-producing country in the world by a long shot, with total production reaching 5.7 million metric tonnes in 2015, although estimations were higher, at 6 million tonnes. The second top producing country, China, only produced 1.75 million metric tonnes in the same period.
Chile’s state-owned copper giant Codelco holds vast copper deposits, accounting for 10 percent of the world’s known proven and probable reserves and about 11 percent of the global annual copper output with 1.8 million metric tonnes of production.
However, most of its mines are running out of copper and need heavy investment in order to extend their productive life. Codelco recently announced an $18 billion investment plan, just to maintain production at current levels.
Most recently, copper miner Antofagasta (LON:ANTO) reassured investors with a strong production increase in the final quarter of 2016 and by saying it expected to pay less tax, sending its shares sharply higher. But its production fell short from the guidance it had given at the start of 2016.
“We struggled to see the company hitting its full-year guidance, so to see full-year production come in only very marginally shy of 710,000 tonnes is promising, in our view,” Bernstein analysts said in a note.
In addition, La Escondida, the world’s biggest copper mine controlled primarily by BHP Billiton (NYSE:BHP) and Rio Tinto (NYSE:RIO), is in the middle of wage negotiations. Workers called the last wage offer “absurd” and potential strikes could be just around the corner, having a meaningful impact on prices due to the mine’s size.
At the same time, copper grades are falling, making Chile less competitive with other commodity-rich nations such as Peru.
Anglo American (LON:AAL) with interests in Los Bronces, Collahuasi and El Soldado mines, reported a decrease by 9 percent in production in the third quarter of 2016, due to expected lower grades and the impact of strikes that happened earlier in the year.

Chile’s Future

After copper prices dropped, Chile has posted its slowest three years of growth since the economic collapse of 1981. As a result, industry leaders blame Bachelet’s reform program for undermining business confidence, damping investment and growth and exacerbating the impact of lower copper prices.
But in November, Chile will choose their next president that will take office in March 2018.
“I hope they choose someone that allows us to continue advancing toward a country in which the economy can develop, but in which the fruits of that economy are better shared,” Bachelet said.
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Securities Disclosure: I, Priscila Barrera, hold no direct investment interest in any company mentioned in this article.